- EUR/USD attracts some sellers during the Asian session, though it lacks follow-through.
- The USD stalls the overnight pullback from a multi-week top and weighs on the major.
- Traders now look forward to the US PCE Price Index for some meaningful impetus.
The EUR/USD pair struggles to capitalize on the previous day's goodish bounce from over a three-week low, around the 1.0730 area, and edges lower during the Asian session on Friday. Spot prices currently trade with mild negative bias below the 1.0800 mark, though the downtick lacks bearish conviction as investors await the release of the US Personal Consumption Expenditure (PCE) Price Index.
The crucial inflation data will be looked for cues about the Federal Reserve's (Fed) future rate-cut path, which, in turn, will play a key role in influencing the near-term US Dollar (USD) price dynamics and provide a fresh impetus to the EUR/USD pair. In the meantime, some repositioning trade assists the USD to stall the previous day's retracement slide from a multi-week high and acts as a headwind for spot prices. Adding to this worries about the potential economic fallout from US President Donald Trump's tariffs and the risk-off mood lend some support to the safe-haven Greenback.
The shared currency, on the other hand, is weighed down by the risk of a further escalation of trade tensions between the US and the European Union (EU). Trump on Wednesday unveiled a 25% tariff on imported cars and light trucks starting next week. This comes on top of the recent 25% flat import tax on all steel and aluminum, and the uncertainty over Trump's reciprocal tariffs set to take effect from April 2. Meanwhile, the EU has said it will retaliate by imposing tariffs on imports from the US. This raises the risk of an EU-US trade war and further exerts pressure on the EUR/USD pair.
Any meaningful USD appreciation, however, seems elusive in the wake of worries that US President Donald Trump's aggressive trade policies will dent US growth and force the Fed to resume its rate-cutting cycle soon. In fact, the markets are now pricing in the possibility that the US central bank would lower borrowing costs at the June, July, and October policy meetings. This should keep the USD bulls on the defensive and help limit the downside for the EUR/USD pair. Nevertheless, spot prices remain on track to end in the red for the second successive week.
Euro FAQs
The Euro is the currency for the 19 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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